Global Markets Report - 10 May

Australia

Australian shares are expected to open lower this morning following a poor session on Wall Street. The mood was downcast on Tuesday as the US government struggled to resolve the debt ceiling crisis. Investors also awaited key inflation data.

ASX futures were pointing down Wednesday morning, having lost 19 points or 0.3%.

Major US stock indices slipped Tuesday as investors awaited key inflation data and worries about the US debt ceiling loomed over markets.

The S&P 500 dipped 0.5%, the Dow Jones Industrial Average eased 0.2% and the Nasdaq Composite fell 0.6%.

Investors have been watching for progress on talks about raising the federal borrowing limit as the US confronts the risk of defaulting on its obligations for the first time. The government could become unable to pay its bills on time as soon as June 1 if the debt ceiling isn't raised, Treasury Secretary Janet Yellen has projected.

In commodity markets, Brent crude oil advanced 0.5% to US$77.42 a barrel while gold added 0.8% to US$2,036.56.

Australian government bonds moved higher, with the 2 Year yield increasing to 3.21% and the 10 Year yield rising to 3.45%. US Treasury notes also gained, with the 2 Year yield climbing to 4.02% and the 10 Year yield rising to 3.52%.

The Australian dollar was off slightly, at 67.64 US cents, compared to its previous close of 67.80. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, moved up to 95.70.

Asia

Chinese shares ended lower, as investor sentiment cooled slightly following a recent rally. The country's exports growth slowed for April amid a gloomy outlook for external demand. "Exports will decline further before bottoming out later this year," economists from Capital Economics said in a note. State-owned enterprises lost momentum in afternoon trading, with telecoms and insurers leading losses. China Unicom dropped 3.5% and Ping An Bank declined 2.6%. Financials and the property sector were the highlight in today's session. China International Capital Corp. rose by its daily limit of 10%. Poly Developments added 1.6%. The Shanghai Composite Index ended 1.1% lower at 3357.67. Both the Shenzhen Composite Index and the ChiNext Price Index declined 1.2%.

Hong Kong's Hang Seng Index fell 2.1% to close at 19867.58 amid concerns over China's domestic demand, spurred by data showing imports unexpectedly fell in April from a year earlier. Falling Chinese imports is a bad sign for companies exporting to China, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in an email. Among the worst performers on the benchmark HSI, SMIC slid 7.4%, Shenzhou International Group lost 6.0% and Alibaba Health Information Technology shed 5.5%. The Hang Seng Tech Index dropped 2.95% to close at 3798.70.

Japanese stocks ended broadly higher, led by steel shares and trading houses, as several strong corporate results raised hopes for earnings growth. JFE Holdings jumped 15% after the steelmaker projected a 17% increase in net profit this fiscal year. Sumitomo Corp. surged 6.7% after it posted a 22% gain in fiscal-year net profit and announced a share buyback. The Nikkei Stock Average rose 1.0% to 29242.82.

India's benchmark Sensex index closed flat at 61761.33. The release of US CPI data is likely to remain in focus, as it will determine the direction of the Federal Reserve's monetary policy, explained Saxo market strategist Charu Chanana in a note. Gainers included IndusInd Bank, which rose 1.2%; Axis Bank, which added 1.1%; and Tata Consultancy Services, which was 1.0% higher. Decliners included State Bank of India, which fell 1.7%; Bajaj Finance, which was down 1.6%; and Power Grid Corp. of India, which was 0.6% lower.

Europe

European stocks dropped Tuesday amid ongoing economic, financial and sectoral uncertainty. The pan-European Stoxx Europe 600 fell 0.4%, the French CAC 40 shed 0.6% and the German DAX traded flat. Property stocks lost ground on concerns surrounding the commercial real estate sector in Sweden and elsewhere.

The United Kingdom’s FTSE 100 closed down 0.2%, dragged by property stocks after a drop in UK house prices and a retreat in global markets. UK house prices fell in April after three months of growth according to the Halifax House Price Index, prompting shares of Unite Group, Land Securities Group and British Land Company to drop 4.5%, 3.2% and 2.9%, respectively. On another hand, International Consolidated Airlines led a short list of risers, up 3.5% after Peel Hunt upgraded the owner of British Airways, Iberia and others to buy from hold.

"Tomorrow's CPI datapoint looms large over investors, who have been unwilling to take on more risk ahead of the inflation figures," IG analyst Chris Beauchamp wrote. "With the regional bank crisis rumbling along, we seem to have the makings of another volatility surge, timed just to arrive as the US debt ceiling battle reaches fever pitch."

North America

Major US stock indices slipped Tuesday as investors awaited key inflation data and worries about the US debt ceiling loomed over markets.

The S&P 500 dipped 0.5%, the Dow Jones Industrial Average eased 0.2% and the Nasdaq Composite fell 0.6%.

Investors have been watching for progress on talks about raising the federal borrowing limit as the US confronts the risk of defaulting on its obligations for the first time. The government could become unable to pay its bills on time as soon as June 1 if the debt ceiling isn't raised, Treasury Secretary Janet Yellen has projected.

President Biden on Tuesday was scheduled to host a high-stakes meeting with House Speaker Kevin McCarthy and other congressional leaders to discuss the debt limit. Neither side has presented a path forward that could win enough support to pass both chambers of Congress.

"We've got this debt overhang," said George Mateyo, chief investment officer at Key Private Bank. "Until a deal gets done, there's going to be some building consternation within the markets."

Market participants also braced for the latest consumer-price index (CPI) due for release Wednesday morning. Economists are forecasting a 5% increase for April from a year ago, in line with the previous month's reading, which eased to its lowest level in nearly two years.

Inflation data could factor into the Federal Reserve's decision-making regarding interest rates, which influences appetite for US equities. Traders are betting the Fed could cut interest rates later this year as inflation shows signs of abating. The latest producer-price index (PPI) scheduled to come out Thursday will also offer clues about the path of inflation.

"It's a wait-and-see mode that investors find themselves in with CPI and PPI this week," said Jim Smigiel, chief investment officer at SEI. "If we have a hotter-than-expected or cooler-than-expected CPI tomorrow, you can expect to see a bigger reaction than usual in the market."

In earnings-related market action, shares of Lucid and Fisker fell after electric-vehicle makers reported quarterly results. PayPal also fell 13% after the payments giant late Monday cut its outlook for annual adjusted operating margin.